15th September 2014
An Independent Scotland will have to raise its taxes and slash spending in order to afford the state pension set out by the Scotland National Party (SNP).
According to evidence submitted to the Scottish Parliament Finance Committee by independent body, the Pensions Policy Institute (PPI), if the SNP wants to keep the same state pension age and pension policy as the rest of Britain, it could find it more difficult to afford state pension expenditure.
Chris Curry director of the PPI said “The increased state pension spending implied by the plans of the Scottish Government is not necessarily unaffordable. However, the Scottish Government would need to either raise higher revenues – for example through taxation, reduce spending in other areas, for example where demographic pressures are less, or have higher Government debt levels.”
The Pensions Act 2014 implements a new single-tier state pension from April 2016 that will replace the current Basic State Pension and the State Second Pension. The Act also contains a process for determining future increases to the State Pension Age. But the PPI’s has highlighted significant differences in estimates of life expectancy within the UK.
While for England, 2032 is the trigger year in which the SPA would need to increase to 68 to meet the criteria set out in the 2014 Pensions Act, the first year in which this would happen in Scotland is 2045.
However, despite lower life expectancy levels overall for Scotland, the population is ageing more quickly there than the rest of the UK, and increasing faster relative to the number of working age people.
This could make paying for state pensions more difficult in future in an Independent Scotland, with higher state pension expenditure being funded by a relatively smaller working age population.
The Scottish Government has proposed a number of further state pension measures for Scotland, all of which would further increase state pension costs asserted the PPI. These measures include a delay in increases to the State Pension Age compared to the rest of the UK, a potentially more generous single-tier pension and a retaining of the Savings Credit – which would be abolished for people reaching State Pension Age in the rest of the UK from April 2016 onwards.
Curry added: “An independent Scotland, keeping the same State Pension Age and state pension policy as the rest of the UK, may therefore find it more difficult than the UK as a whole to afford state pension expenditure.”